2026 tax year · Washington DC
Is an S-corp election worth it in Washington DC?
Washington DC does not recognize the federal S election. It taxes the company as a C corporation, so electing here creates a state tax rather than avoiding one.
Work it out on your own numbers
The figures below use $100,000 of profit and our standard assumptions. Put your own in instead, this compares staying a sole proprietor against electing, with Washington DC's own charges on the company included:
Salary share and withdrawal share are percentages. The withdrawal figure only affects the C corporation, it is what decides whether the second layer of tax applies at all.
Enter your figures above and press Compare.
What the election is worth on $100,000 of profit
A single filer taking the standard deduction, paying themselves 40% of profit as salary, with $1,500 a year of payroll and filing cost:
| Tax as a sole proprietor | $28,664 |
| Tax as an S-corp, federal and personal state | $23,659 |
| Saving from the payroll-tax split alone | $5,005 |
| What Washington DC charges the company | − $8,500 |
| Net cost | $3,495 worse off |
Washington DC charges the company 8.25% of net income plus a $250 minimum.
The profit range where it actually pays in Washington DC
On these assumptions the election does not pay for itself at any profit up to $500,000 in Washington DC. What Washington DC charges the company outweighs the payroll-tax saving throughout.
| Net profit | Sole proprietor | S-corp, all in | Difference |
|---|---|---|---|
| $60,000 | $15,262 | $17,411 | costs $2,149 |
| $100,000 | $28,664 | $32,159 | costs $3,495 |
| $150,000 | $47,857 | $52,890 | costs $5,033 |
| $250,000 | $84,208 | $98,267 | costs $14,060 |
What Washington DC does differently
Washington DC taxes the profit either way. Whether you take it as self-employment income or as salary plus distribution, roughly $6,900 of Washington DC income tax sits on $100,000 of profit, the election moves the payroll-tax half of the bill, not the state half.
The Washington DC detail
For District tax purposes an S corporation is treated as a C corporation: it files the D-20 franchise tax return and pays 8.25% on DC taxable income, so DC shareholders face entity-level tax plus personal tax on distributions. The minimum is $250 where DC gross receipts are $1,000,000 or less and $1,000 above that. OTR's published rate table lists 8.25% through tax year 2025 and does not yet show a 2026 row, the rate has been 8.25% since 2018 with no announced change, but the 2026 figure is inferred from continuity rather than confirmed. DC's report is biennial ($300 every two years), not annual.
We rate our confidence in this entry as medium: some of it comes from tax publishers and professional bodies rather than from Washington DC's own revenue department. Confirm it before acting on it.
How much salary to pay yourself
Enter your figures above and press Calculate.
Less salary means less payroll tax, so the arithmetic always points at the smallest salary you can justify. That is exactly why it is not a number to optimize: compensation has to be reasonable for the work you do, and the penalty for getting it wrong is reclassification plus back payroll tax. The cheapest row here is the riskiest one.
| Salary share | Salary | Distribution | Total tax | vs sole proprietor |
|---|---|---|---|---|
| 20% | $20,000 | $76,970 | $20,186 | $8,478 |
| 30% | $30,000 | $66,205 | $21,923 | $6,742 |
| 40% | $40,000 | $55,440 | $23,659 | $5,005 |
| 50% | $50,000 | $44,675 | $25,396 | $3,268 |
| 60% | $60,000 | $33,910 | $27,133 | $1,531 |
What this assumes
- Single filer, standard deduction, the business as the only income.
- 40% of profit taken as salary in the headline figures.
- $1,500 a year for payroll and a separate 1120-S, a cost estimate, not a tax figure, and it varies by provider.
- Comparing against a sole proprietorship. If you already trade through an LLC, some state fees are owed either way and are not a cost of electing.
- Anything listed as not modeled above is genuinely owed, it is excluded because it does not depend on profit, not because it is nil.
What these words mean
- Gross receipts
- Everything the business took in, before subtracting any costs. A tax on gross receipts is owed even by a business making a loss, which is what makes it different from a tax on profit.
- Franchise tax
- A charge for the privilege of operating as a company in a state. Despite the name it has nothing to do with franchises, and it is often owed whether or not the business made money.
- Entity level
- A tax charged to the company itself, before any profit reaches the owners, as opposed to a tax the owners pay on their own returns.
- C corporation
- A company taxed as a separate taxpayer in its own right, so profit is taxed once to the company and again to the owner when paid out. The thing an S corporation election is meant to avoid.
- S corporation election
- Asking the tax office to treat your company as a pass-through, so profit is taxed to you rather than to the company. The owner takes a salary and the rest as a distribution, which is what saves payroll tax.
- Distribution
- Profit paid out to a company’s owner that is not salary. It is not subject to payroll or self-employment tax, which is the whole point of the S corporation election. And why the salary has to be defensible.